02/28/2012

A California Court of Appeal has written another chapter in the unfinished epic struggle between the federal and California courts over the enforceability of employment arbitration agreements. And it reads against enforceability. The decision, Mayers v. Volt Management Corp., is of practical value, and provides guidance on drafting and implementing an employment arbitration agreement and can be found here.

In summary, the court found Volt’s arbitration agreement unenforceable for two reasons.

First, the agreement was procedurally flawed: it required plaintiff to submit all employment related claims to arbitration pursuant to the “applicable rules of the American Arbitration Association in the state” where plaintiff was employed. But, the employee was not provided a copy of the rules and was not advised in the agreement or otherwise which set of AAA rules would apply or how he could find or review the rules. The court even suggested that the exact title of the rules, as promulgated by AAA, should be recited. The remedies for these errors are apparent.

Next, the agreement was found to be substantively flawed because it provided that the prevailing party in the arbitration may recover attorneys’ fees, and this mandate effectively changed federal and state law, which provides a strict threshold of proof before a defendant employer may recover attorneys fees. Thus, the agreement was all the more one-sided, and limited the employee’s substantive rights. Again, fixing this flaw is not difficult from a drafting standpoint. But agressive employer-oriented policy decisions about the arbitration process may be more responsible than poor drafting.

The decision is another reminder of the attention that must be paid not only to the details of drafting the arbitration agreement, but also to the implementation of the agreement. Volt’s arbitration agreement was contained in the employment application, an employment agreement, and the Acknowledgement of Receipt of the Employee Handbook, all of which were signed. So, the existence of the provision was no surprise – but it was a mandatory condition of employment, and thus the court applied the scrutiny required under California law. The agreement was found wanting.